Ed explains how New IRS Life Expectancy Tables Reflecting Longer Life Expectancies, which took Effect Jan. 1, 2022, will help you keep more money in retirement accounts.
In late 2020, the IRS issued final regulations with respect to updated life expectancy tables, recognizing increased individual longevity. In particular, three new IRS life expectancy tables took effect on Jan. 1, 2022.
The three new IRS life expectancy tables (a portion of two of the updated tables are listed below) were revised and will appear in the 2021 IRS Publication 590-B (Distributions from Individual Retirement Arrangements) which should be available for download in early February 2022 here.
- Uniform Lifetime Table – a portion of the updated table is shown below. This table is used to calculate lifetime required minimum distributions (RMDs) from an individual’s traditional IRA or from individual’s qualified retirement plan (including the Thrift Savings Plan or TSP).
- Joint and Last Survivor Life Expectancy Table. This table is used when a spouse is the sole IRA beneficiary or qualified retirement plan (including the TSP) beneficiary, and the spouse is more than 10 years younger than the traditional IRA owner or qualified retirement plan participant (including a TSP participant).
- Single Life Expectancy Table. This table is used by either of the following two individuals: (1) A surviving spouse who is the sole beneficiary of the deceased spouse’s IRA; or (2) An “Eligible Designated Beneficiary” (EDB) of an individual’s IRA who inherits the (traditional or Roth) IRA owner’s account at the time of his or her death. An EDB is someone who is:(a) Disabled; (b) chronically ill; (c) not more than 10 years younger than the IRS owner; or (d) a child of the IRA owner who has yet to reach the age of majority. A portion of the revised table is presented below.
Note the following with respect to the Single Life Expectancy Table:
- The single life expectancy table is used if an IRA owner dies after his or her required beginning date (RBD) and did not name a beneficiary of his or her IRA (the so-called “ghost rule”). The RBD is April 1 of the year following the year the IRA owner becomes age 70.5 (if the IRA owner was born before July 1, 1949) or April 1 following the year the IRA owner becomes age 72 (if the IRA owner was born after June 30, 1949).
- The single life expectancy table is used to calculate RMDs from inherited IRAs for IRA beneficiaries who inherited their IRAs from a deceased IRA owner who died before Jan. 1, 2020 (which was the effective date of the SECURE Act).
- The single life expectancy table is never used by traditional IRA owners or qualified retirement plan participants (including TSP participants) to calculate their TSP RMDs.
It is useful and important to present some examples illustrating the use of the new (post-2021) IRS life expectancy tables and comparing the results with the results of the old (pre-2022) IRS life expectancy tables.
Two Examples of Taking RMDs Based on the Uniform Lifetime Table (Pre-2022 and Post-2021 Tables)
The Uniform Lifetime Table is a “recalculating” table in the sense that a traditional IRA owner or a retired qualified retirement plan participant (including a retired TSP participant) who has reached his or her RBD (see above) will go back each year to the Uniform Lifetime Table to locate his or her age in that year and associated life expectancy factor. The life expectancy factor for that year is then divided into the traditional IRA or qualified retirement plan December 31 account balance from the previous year in order to compute the RMD for the current year.
It should be noted that in spite of the recent decrease in overall life expectancy due to the COVID-19 pandemic, on average life expectancies have increased. This is why in 2019 the IRS started the process of updating their life expectancy tables. While the new and updated life expectancy tables do not show substantial changes, the changes show larger life expectancy amounts. This means for most individuals reduced RMDs, as will be shown in the examples below.
The following is a portion of the Uniform Lifetime Table (both pre-2022 and the post-2021 life expectancy factors)
Uniform Lifetime Table (Used to Calculate Lifetime RMDs from a Traditional IRA and a Qualified Retirement Plan)
|Age of IRA owner or Retirement Plan Participant||Life Expectancy (in years)||Age of IRA owner or Retirement Plan Participant||Life Expectancy (in years)|
The following two examples illustrate use of the Uniform Lifetime Table:
Example 1. Thomas became age 74 in 2021. Thomas retired from federal service in 2016 under FERS with a TSP account worth $1 million on the day of his retirement. For the year 2021, Thomas must take a TSP RMD. For the year 2021, Thomas calculated his TSP RMD based on his TSP account balance as of Dec. 31, 2020, and his life expectancy factor given his age of 74 years. Using the pre-2022 Uniform Lifetime Table, Thomas finds his lifetime expectancy of 23.8 years (see Uniform Lifetime Table above). With a Dec. 31, 2020 TSP account balance of $1,300,000, Thomas’ 2021 TSP RMD is equal to:
- TSP account balance 12/31/2020: $1,300,000
- Divided by the Life Expectancy Factor age 74: ÷23.8
- Thomas’ 2021 TSP RMD = $54,622
For the year 2022 when Thomas becomes age 75, he will use his TSP account balance as of Dec. 31, 2021 and his life expectancy factor of 75 years, given that he will become 75 years old during 2022. His Dec. 31,2021 TSP account balance was $1,260,000. Using the post-2021 Uniform Lifetime Table, Thomas finds his life expectancy of 24.6 years (see Uniform Lifetime Table above). With a Dec. 31, 2021 TSP account balance of $1,260,000, Thomas’ 2022 TSP RMD is equal to:
- TSP account balance 12/31/2021: $1,260,000
- Divided by the Life Expectancy Factor age 75: ÷24.6
- Thomas’ 2022 TSP RMD = $51,220
Note that had Thomas used the pre-2022 Uniform Lifetime Table in order to calculate his 2022 TSP RMD, he would have used a life expectancy factor of 22.9 years (see Uniform Lifetime Table – pre-2022 for age 75). His 2022 TSP would then have computed as $1,260,000/22.9 equals $55,022 ($3,802 more).
For those traditional IRA owners or TSP participants who retired before 2021 or retired during 2021, and who became age 72 any time during 2021, there is a potential added layer of complexity. These individuals are due to take their first RMD for the year 2021. Also, it is important to keep in mind that in case a TSP participant also owns a traditional IRA, there is a separate RMD for the traditional IRA and another RMD for the TSP.
The added layer of complexity is because the first RMD for the year 2021 can be delayed and taken between Jan. 1, 2022, and Mar. 31,2022. In general, any individual who delays taking their first-year RMD (in this case 2021) to the following year during January, February or March, (in this case 2022) must take two RMDs in the following year. This means that traditional IRA owners and retired TSP participants who become age 72 during 2021 and who opted to take their 2021 RMDs in early 2022 will have to take their second RMD (for 2022) before Dec. 31, 2022. They will use the pre-2022 Uniform Lifetime Table in order to calculate their 2021 RMD and use the post-2021 Uniform Lifetime Table in order to calculate their 2022 RMD. The following example illustrates:
Example 2. Sheila, a retired FERS employee, became age 72 on Aug. 31, 2021. Since Sheila became age 72 during 2021, she must take her first TSP RMD no later than April 1, 2022. Her 2021 TSP RMD is calculated based on her TSP account balance as of Dec. 31, 2020 (which was $850,000) and her 2021 life expectancy factor (found in the pre-2022 Uniform Lifetime Table) for Sheila’s age of 72 during 2021. This is 25.6 years. Note that Sheila must use the pre-2022 Uniform Lifetime Table even though she plans to take her 2021 TSP RMD in early February 2022.
Sheila’s 2021 TSP RMD is therefore:
- TSP account balance 12/31/2020: $850,000
- Divided by the Life Expectancy Factor age 72: ÷25.6
- Sheila’s 2021 TSP RMD = $33,203
Sheila must take her 2022 TSP before Dec. 31, 2022. Her 2022 TSP RMD will be based on Sheila’s TSP account balance of Dec. 31, 2021 (which was $920,000) and her 2022 life expectancy factor based on Sheila’s age during 2022 of 73. To determine her life expectancy factor for age 73, Sheila must use the post-2021 Uniform Lifetime Table. The expectancy factor for age 73 in the post-2021 Uniform Lifetime Table is 26.5 years.
Sheila’s 2022 TSP RMD is therefore:
- TSP account balance 12/31/2021: $920,000
- Divided by the Life Expectancy Factor age 73: ÷26.5
- Sheila’s 2022 TSP RMD = $34,717
Example of Taking RMDs Based on the Single Life Expectancy Table (Pre-2022 and Post-2021 Tables)
The Single Life Table is used by individuals and any designated beneficiary who inherited IRAs (traditional IRAs or Roth IRAs) before Jan. 1, 2020, or by “eligible designated beneficiaries” (EDBs) who inherited IRAs after Dec. 31, 2019. EDBs include a spouse, a disabled individual, and any individual who is not more than 10 years younger than the deceased IRA owner. For a non-spousal beneficiary, this is the only time the beneficiary will use the Single Life Expectancy Table. This is because a non-spousal beneficiary cannot recalculate in future years. After the first-year life expectancy factor is determined (based on the beneficiary’s age in the year of the IRA owner’s death) the initial life expectancy factor is automatically reduced by one in each succeeding year.
The following is a portion of the Single Life Expectancy Table (both pre-2022 and the post-2021 life expectancy factors)::
Single Life Expectancy Table (for Inherited IRAs)
|Age of IRA Beneficiary||Life Expectancy (in years)||Age of IRA Beneficiary||Life Expectancy (in years)|
The use of the pre-2022 and the post-2021 Single Life Expectancy Table is illustrated in the following example:
Example 3. In 2016, Richard’s grandmother died, and Richard was the designated beneficiary of his grandmother’s traditional IRA. Richard’s first beneficiary traditional IRA RMD was in 2017 when he was 30 years old. Since Richard inherited his grandmother’s IRA before Jan. 1, 2020 (meaning that he inherited his grandmother’s IRA before the SECURE Act took effect) he elected to receive his grandmother’s IRA over his life expectancy. That is, Richard’s annual inherited traditional IRA RMD is calculated based on his lifetime expectancy. His first inherited IRA RMD was due no later than Dec. 31, 2017, the year after his grandmother’s death. He used the pre-2022 Single Life Expectancy Table for a 30-year-old, which as shown in the pre-2022 Single Life Expectancy Table above is 53.3 years. He divided 53.3 into the inherited traditional IRA balance as of Dec. 31, 2016, to compute his 2017 inherited IRA RMD.
Since Richard is a non-spousal beneficiary of a traditional IRA, he cannot recalculate his life expectancy from the Single Life Expectancy Table. Instead, each year he simply subtracts one (1) from the previous year’s life expectancy factor. In 2018 his life expectancy factor was therefore 53.3 years less one, or 52.3 years; in 2019 his life expectancy factor was 52.3 years less one, or 51.3 years. For the years 2020, even though there was no RMD because of the CARES Act (passed into law as a result of the COVID-19 pandemic), the life expectancy factor still decreased by one to 51.3 years less one, or 50.3 years. For 2021, Richard’s life expectancy factor decreased by one from 50.3 years to 49.3 years.
But starting Jan. 1, 2022, the Single Life Expectancy Table changes. In order to properly calculate his 2022 inherited traditional IRA RMD and to reset his non-calculation RMD schedule, Richard must use the post-2021 Single Life Expectancy Table. He does so by looking up his life expectancy factor for the year that he first started his inherited IRA RMDs. In the post-2021 table, the life expectancy factor for a 30-year-old is 55.3. Richard will need to subtract 5 years – 55.3 years less 5, or 50.3 years, as his new baseline life expectancy factor amount in 2022, rather than the 49.3 less 1 or 48.3 life expectancy factor he would have used without resetting the factor. Richard will subtract 1 each year going forward, starting in the year 2023.
New IRS Tables RMDs 1/1/22
Edward A. Zurndorfer is a Certified Financial Planner, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street – Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While the employees of Serving Those, Who Serve are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.